Low Account Balances, Gender Savings Gap Found Among Public Sector Workers

Public sector workers with defined contribution plans face many complications when it comes to retirement planning, as many approaching retirement have low account balances and women continue to lag behind their male counterparts in terms of savings, according to new data from the Public Retirement Research Lab. 

Half of public plan participants in their 60s have account balances lower than $40,000, and the median account balance for public plan participants in their 40s is approximately $18,000, as of year-end 2021, EBRI and NAGDCA found in its collaborative research. 

This analysis reflected data for 267 plans spanning 457(b), 401(a), 401(k) and 403(b) DC plans, which includes more than 2.5 million state, county, city and subdivision government employees. The most common plan analyzed in PRRL’s database is the 457(b) plan, representing 63% of participants, which is typically a voluntary supplemental savings vehicle in conjunction with a defined benefit plan. 401(a) plans represent about 20% of the total participants in the database, 401(k) plans represent about 16%, and 403(b) plans represent about 1%.  

Loan usage in public DC plans was found to be highest among participants in their 40s, as nearly 10% in this cohort had outstanding loan balances. Offering loans is optional for plan sponsors, and many are cautious about allowing participants early access to their retirement funds. At the same time, the PRRL report explained that many employers understand that unusual circumstances arise and that loans can be a source of emergency funds. 

Only 2% of those in the 20s age cohort have taken out a loan, but for those that have, the balance equals nearly one-quarter of their DC assets across all types of accounts. For participants in their 40s, about 9.6% took out loans, according to the report. 

In terms of asset allocation, participants in their 20s had the largest allocations to target-date funds, and allocations to bond funds and money market/stable-value funds increased with age, reaching 7% and 20%, respectively, for participants in their 60s. 

Asset allocations also greatly differed between men and women, according to PRRL’s study, “A Gender Lens on Public-Sector DC Savings Behaviors.” Men took on greater equity risk in their retirement portfolios, having a higher allocation to equity funds relative to women across all age groups, according to the research. For example, men in their 40s had an average of 51% of their accounts allocated to equity funds, whereas women across all age groups had an average allocation to equity funds of 37%.  

As a whole, men contributed a higher percentage of their salaries to their retirement plan, relative to women, for all but the youngest employees. The median total contribution rate for women in their 20s was 2.2%, but the analogous rate for men was 2.1%. The difference in dollar contributions may in part be driven by differences in salaries paid to men versus women: As men tend to earn more than women, they are likely to contribute larger amounts to retirement savings. 

“While these differences in savings rates may be small, it is important to keep in mind that these contribution rates represent only a single year, meaning they are compounded over the course of the working career to determine participants’ account balances at retirement age,” the report stated. 

A recent MissionSquare research report of public sector workers younger than 35 found that 42% of workers feel that the wage compensation offered by their employer is not competitive with the labor market. In addition, about 60% of workers said they were considering changing jobs in the near future, and among those, 71% said they are looking to switch jobs because they want a higher salary. A smaller portion, 24%, said they want a better benefits package. 

Notably, one in five respondents did not know whether they are participating in a defined benefit plan or a defined contribution plan through their employer. Authors of the MissionSquare report argued that there is a need for more information and communication from employers on these issues.